mm2 Asia remains a 'buy' for Maybank despite reduced forecasts on non-operational leakage

mm2 Asia remains a 'buy' for Maybank despite reduced forecasts on non-operational leakage

By: 
Michelle Zhu
21/02/19, 12:23 pm

SINGAPORE (Feb 21): Maybank Kim Eng is maintaining its “buy” call on mm2 Asia while lowering its target price on the stock to 34 cents from 57 cents previously, after cutting 2019-21E core profit forecasts by 48%, 12% and 9%, respectively.

This comes after the group’s 9M19 core profit came in below expectations at 34% of Maybank’s FY19 estimates, and 67% of previous consensus forecasts.

See: mm2 Asia posts 59% drop in 3Q earnings to $2 mil on higher expenses

The research house however makes no changes to its operational assumptions, as mm2 generates the bulk of its revenues and profitability from the core movie/TV production business, where 9M19 EBIT met 76% of Maybank's FY19 estimates. 

In a Wednesday report, analyst Luis Hilado says the profit downgrades are driven primarily by finance charges and by a higher effective tax rate as the non-cash provisions are not tax deductible.

“If management conducts a potential listing of its cinema business, the provisions would likely be reversed,” says Hilado.

“Movie/TV production and cinema business quarterly revenue and EBIT breakdown has so far been absent which makes any gauge about how these business segments are doing difficult. We expect to see these reported in the next quarter and see this as a key step towards transparency and regaining the market’s confidence,” he adds.

Meanwhile, Hilado says mm2’s production business for the TV/movie and event/concert segments have reported numerous new contract and relationship wins over the past few months, which he deems as evidence of an improving order book in terms of both volume and quality.

“These should translate to the healthy 18% core profit CAGR we forecast over FY18-21E,” concludes the analyst.

Shares in mm2 last traded 1.85% lower at 26 cents before the midday trading break, or 1.15 times FY19E book value.

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